Guest

From NPR and WBUR Boston, I'm Meghna Chakrabarti, in for Robin Young. It's HERE AND NOW.

Nearly five years ago, people woke up this financial news...

(SOUNDBITE OF ARCHIVED NEWS)

UNIDENTIFIED MAN: The American investment bank, Lehman Brothers, has filed for bankruptcy in New York. That's happened in the last few minutes. It means the Wall Street institution, which has been in business for 150 years and survived the Great Depression, is now the most high-profile casualty of the credit crunch.

CHAKRABARTI: Well, at that time, Lehman Brothers had been the fourth largest investment bank in the world. Many thought it was too big fail. But the government refused to bail it out and financial markets collapsed. The stock market is going gangbusters now, but are banks really safer? And could another crisis be looming eventually? Cardiff Garcia, reporter for the Financial Times, joins us. And, Cardiff, let's dig into this. But first of all, take us back to 2008...

GARCIA: Sure. So in very simple terms, remember what investment banks do. They borrow money in some markets, and then they do things in other markets, like they lend money or they put together these complicated financial instruments. Well, Lehman Brothers had to pay back some of its loans, but those loans or its debt were in very short-term markets. So the institutions lending it money got very nervous that it wouldn't be able to pay them back. They all made a run on the bank, essentially, in these very short-term markets. And then this similar dynamic played out at other institutions before there was a bailout, and that's what led to the crisis.

CHAKRABARTI: OK. And so since then, we've had a lot of hearings, you know, various heads of all these investment banks have - had to do the walk-of-shame...

CHAKRABARTI: But people have to be wondering, is it enough? Is the financial system really safer at its core level than it was in 2008?

GARCIA: The financial system is safer. But I think it's very important not to exaggerate that answer because the main reason it is safer is simply that people are still paying attention. The memory of the crisis is still very firmly as - it's hasn't quite faded yet. So the question isn't whether or not it's safer now, but whether or not it will be safer in 10 to 15 years, whether or not we put in place the kinds of rules and regulations that will keep it safe. And that's a much more complicated question.

Now, there is some good news. Some of these rules are working. Banks have more capital. They can more easily absorb losses. This is good and, hopefully, the regulators will stay on their case. There's also less debt overall, and that tends to make the financial system safer. But keep in mind that this was a multi-faceted crisis. It wasn't just about what caused the crisis. It's that the crisis exposed a number of other vulnerabilities that people weren't aware of, and not all of those vulnerabilities have been fixed. So there's a lot of work to do before we can say that we're finished, and that we've solved the problem of crisis. That's going to be an ongoing issue.

CHAKRABARTI: So let's talk a little bit more about that. I mean, one of the vulnerabilities...

GARCIA: Sure.

CHAKRABARTI: ...that was exposed was that all these big banks, you know, they had their fingers in each other's business. They were very interconnected and part of the reason was, what, those bad mortgages were being securitized. The risk was being spread across institutions. And have banks then fundamentally changed the way they handle mortgages now?

GARCIA: Not enough, I'm afraid. You know, it's not just mortgages, by the way. I mean, there's all kinds of other operations that banks undertake that are still not transparent enough. We've got an example of that with JPMorgan and the London Whale. And so the issue is, how do we make these markets a little bit more transparent? And how do we make - keep making the banks a little bit safer? That's a very complicated question, but to make the answer short, no, the work's not done yet. So it's not just about mortgages.

A lot of scrutiny's has been placed on the housing market. It's also just about the way banks fundamentally operate. They are still very interconnected. They're also still very big. Some have gotten even bigger. And they might still be too big to manage in many instances. So the work of regulators hasn't been finished yet.

CHAKRABARTI: Cardiff Garcia is a reporter for the Financial Times. Cardiff, thanks so much.

GARCIA: Thanks, Meghna. Great to be here.

CHAKRABARTI: And, listeners, let us know what you think, what you remember from that financial collapse, which began five years ago this week. Let's know at hereandnow.org. We'll be back in a minute. It's HERE AND NOW. Transcript provided by NPR, Copyright NPR.